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North Carolina Offers Best Places to Start a Small Business

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The coronavirus pandemic brought countless economic challenges, especially for small business owners who had to find ways to cope with a new way of doing things. Sometimes confusing health and safety rules and evolving social distancing requirements only added to the hurdles. But as we near 2022 and some of these challenges wear away, would-be entrepreneurs may be looking to start new business ventures.

“It’s definitely a challenging time to start a small business, but that doesn’t mean that you shouldn’t do it,” says Matt Schulz, LendingTree chief credit analyst. “There are always going to be things that you can’t predict. The truth, however, is that if you have a good idea, a thoughtful plan, adequate funding and a willingness to take the risk and put in the work, any time can be a good time to get started.”

To find the best and worst places to start a small business, LendingTree looked at nine metro- and state-based metrics — from the proportion of self-employed residents to unemployment rates to one-year business survival rates — across the 100 largest U.S. metros by population.

Key findings

  • North Carolina offers the best places to start a small business. Raleigh tops the list, with Charlotte (No. 3) and Durham (No. 4) closely behind. 54.8% of Raleigh’s population is in their prime working years between ages 25 and 54, ninth-highest among the 100 metros. Austin, Texas, is No. 2.
  • The South dominates the top 10 places to start a small business. The South has five metros in the top 10, while Western and Midwestern states occupy the other five slots.
  • California offers the worst places to start a small business. Three Golden State metros — Bakersfield, Stockton and Fresno — take the bottom spots, while Riverside also places in the bottom 10. Bakersfield has the highest unemployment rate — 10.7% — among the 100 metros. It also has the lowest percentage of residents with at least a bachelor’s degree — 17.1% — among the metros.
  • The West dominates the bottom 10 places to start a small business. Honolulu joins the four California metros in the bottom 10, while Midwestern and Northeastern states take the other five spots.

Best places to start a small business

The Raleigh metro area stands out as the best place to start a small business. Here are the main highlights about North Carolina’s capital city:

  • It has the seventh-highest proportion of residents with at least a bachelor’s degree — 48%, compared with an average of 34.5% across the 100 metros.
  • Nearly 55% of its population is in their prime working years between ages 25 and 54, good enough for ninth among the 100 metros.
  • Its unemployment rate was 3.9% in July 2021 — the latest available at the time of research — nearly two percentage points lower than the U.S. rate of 5.7%.

Ahead of the other North Carolina metros is Austin, Texas, which sits in second. Just 21.4% of residents’ income goes toward housing costs — the highest rate is 27.6% in Miami — so there may be more opportunities to invest in creating a new business.

As an added plus, almost 80% of Texas small businesses survive their first year. The Austin metro also ranks ninth among the 100 metros for its rate of residents with at least a bachelor’s degree — 46.2%, just behind Raleigh — and 16th for its proportion of self-employed residents, which can indicate a good culture of entrepreneurship.

“I’m not surprised that Austin tops this list,” says Schulz, himself an Austin resident. “It’s a young, highly-educated town. The city has also seen a huge influx of people moving in from pricier locales like California and New York in search of cheaper housing and lower taxes.”

Charlotte is an interesting story at No. 3. The North Carolina metro’s highest ranking is 15th — based on the state’s tax climate, which factors in corporate, individual income, sales, property and unemployment insurance taxes. But its lowest ranking is just 53rd — based on the state’s entrepreneurship rate, or the rate of residents who start a business. This shows that a steady balance across the board can make for a better place to start a small business in some cases.

Of interest: Portland, Ore., which comes in seventh overall, is ranked sixth for its proportion of residents in their prime working years and fifth for its business formation rate (the percentage of new businesses that make payroll within eight quarters of applying for a tax Employer Identification Number (EIN)). But its housing costs as a percentage of income are among the highest in the nation, keeping it from a better ranking.

South offers top places to start a small business

LendingTree also looked at regional trends for starting a small business. Among the top 10 metros, half are in the South, while the rest are in the West or Midwest.

Top 10 places to start a small business
Rank Metro
No. 1 Raleigh, NC
No. 2 Austin, TX
No. 3 Charlotte, NC
No. 4 Durham, NC
No. 5 Boise, ID
No. 6 Minneapolis, MN
No. 7 Portland, OR
No. 8 Salt Lake City, UT
No. 9 Nashville, TN
No. 10 St. Louis, MO

Each of the Southern states represented in the top 10 — North Carolina, Texas and Tennessee — have a one-year business survival rate of at least 78% (the average across the 100 metros). And each of the related metros rank among the top 25 for the lowest unemployment rates.

Meanwhile, the business formation rates in the Western states represented in the top 10 — Idaho, Oregon and Utah — are in the top 25 among the 100 metros. In fact, Boise is at No. 1 and Portland is at No. 5.

Worst places to start a small business

At the opposite end of the spectrum, three California metros emerge as the worst places to start a small business.

Bakersfield is the worst-ranked metro among the 100. In fact, the metro finishes the worst in two categories:

  • Unemployment rate (10.7%)
  • Proportion of residents with least a bachelor’s degree (17.1%)

It also ranks in the bottom 10 in three other categories:

  • Tax climate (based on California figures)
  • Housing costs as a percentage of income
  • Proportion of self-employed residents

Because the tax climate metric is state-based, the second- and third-worst places to start a small business — Stockton and Fresno — are also ranked lowly there.

Stockton’s unemployment rate — 9% — and proportion of residents with at least a bachelor’s degree — 20% — are only slightly better than the figures in Bakersfield. Housing costs as a percentage of income in Stockton — 24.7% — are only slightly worse than in Bakersfield (24.2%). Either way, this high percentage means it may be necessary to seek outside help, including business loans, to start a business in either California metro.

The story repeats for the third-worst metro, too. However, Fresno also finishes in the bottom 10 for its proportion of residents in their prime working years, with Bakersfield and Stockton just outside.

Of interest: Ohio is the only other state with two or more representatives among the bottom 10. Toledo — the fourth-worst place to start a small business — is near the bottom 10 in four categories:

  • Proportion of residents with at least a bachelor’s degree
  • Unemployment rate
  • Proportion of residents in their prime working years
  • Proportion of self-employed residents

West offers worst places to start a small business

Half of the bottom-10 metros are in Western states, including four from California.

Bottom 10 places to start a small business
Rank Metro
No. 1 Bakersfield, CA
No. 2 Stockton, CA
No. 3 Fresno, CA
No. 4 Toledo, OH
No. 5 Riverside, CA
No. 6 New Haven, CT
No. 7 Honolulu, HI
No. 8 Dayton, OH
No. 9 Scranton, PA
No. 10 Wichita, KS

As noted, the four California metros have the same rankings across the state-based metrics. But there are other similarities, too. Bakersfield, Stockton, Fresno and Riverside have bottom-eight unemployment rates among the 100 metros — plus, each one finishes in the bottom 10 for housing costs as a percentage of income.

The other metro from the West — Honolulu — appears at the bottom of the rankings for different reasons than the California metros. While California has the best business survival rate (the percentage of new businesses operating after a year), Hawaii is in the bottom 10. California’s business formation rate is in the top 10, while Hawaii’s is in the bottom 10. Lastly, similar to the California metros, Honolulu finishes in the bottom 10 among housing costs as a percentage of income.

The Midwest and West represent the other five spots in the bottom 10.

Full rankings

How to choose a small business location

If you’re looking to start a small business, location can make a big difference in how well it does and how much of an uphill battle it’ll be to get started.

And while it may be tempting to stay where you are, it may not be the best decision for your business. Here are a few factors you should consider first:

  • Think about your business’s needs: Assuming your business isn’t 100% online, the location can make a significant difference in your first years. “So much about starting a business is about knowing what you’re trying to accomplish and who you are trying to serve,” Schulz says. “Once you’ve answered those questions about your own business, you can start researching places that might be the best fit for you, including your current location.” Of note, the average age of entrepreneurs in the largest U.S. metros is 40.
  • Look into the local small business scene: As a new business owner, being able to talk to someone who’s been in your situation before can be a useful way to avoid common pitfalls and get ahead faster. While it won’t be the deciding factor, it can help you weigh your options.
  • Consider your support system: “Starting a business is hard, hard work,” Schulz says. “Having friends and family rooting you on, and even sometimes pitching in physically, financially or emotionally, can be a huge help, especially in those difficult early days.”
  • Compare the cost of living and potential business expenses: The early days of any business can be expensive, so having the opportunity to save on rent — which is usually the largest monthly expense — can help ease that pressure as you begin. Alternatively, staying with family can also help you manage, at least until your business is in a better financial position.

“Ultimately, there’s no one-size-fits-all answer for the perfect place to start a business,” Schulz says, though these metrics can help give you an idea. “What matters most is taking the time to be thoughtful, do your homework and make an informed decision.”

Methodology

LendingTree analysts compared nine metrics across the 100 largest U.S. metros by population to determine the best places to start a small business.

Analysts created three scores using this data:

  • Entrepreneurship score
  • Business climate score
  • Local economy score

Analysts averaged the three indexes to create a final score to rank the metros. Here are the categories and the metrics within them, representing the latest available data at the time of research. Metrics are metro-based unless otherwise noted:

Entrepreneurship score

  • Proportion of residents in their prime working years: The percentage of residents ages 25 to 54. U.S. Census Bureau, 2019. (Full weight)
  • Proportion of self-employed residents: U.S. Census Bureau, 2019 American Community Survey. (Full weight)
  • Entrepreneurship rate: The percentage of residents who start a business, measured at the state level. Kauffman Indicators of Entrepreneurship, 2020. (Half weight)

Business climate score

  • Tax climate: The State Business Tax Climate Index score, measured at the state level. Corporate, individual income, sales, property and unemployment insurance taxes are factors in the score. Tax Foundation, 2021. (Full weight)
  • Proportion of residents with at least a bachelor’s degree: U.S. Census Bureau, 2019 American Community Survey. (Full weight)
  • Business survival rate: The percentage of new businesses still operating after a year, measured at the state level. Kauffman Indicators of Entrepreneurship, 2020. (Half weight)

Local economy score

  • Housing costs as a percentage of income: U.S. Census Bureau, 2019 American Community Survey. (Full weight)
  • Unemployment rate: U.S. Bureau of Labor Statistics, July 2021. (Full weight)
  • Business formation rate: The percentage of new businesses that make payroll within eight quarters of applying for a tax Employer Identification Number (EIN), measured at the state level. Kauffman Indicators of Entrepreneurship, 2020. (Half weight)
 

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